5 Schemes of ICO Token Sales: Pros, Cons and Examples

You will learn to analyse the token sale structure and its compliance with the ICO goals. This article explains the difference between the token distribution schemes, demonstrates their advantages and disadvantages and gives examples of real projects.

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Cryptoassetsrank.com Published on Aug 10, 2018

You will learn to analyse the token sale structure and its compliance with the ICO goals. This article explains the difference between the token distribution schemes, demonstrates their advantages and disadvantages and gives examples of real projects.

Capped Token Sale First-Come First-Served

The organizers of the initial coin offering set a fixed number of tokens and an amount of funds they would like to raise.

The sale exchange rate is fixed.

The tokens are sold if and when there are requests from the buyers until all the tokens have been sold.

This scheme is used when the organizers want to raise a fixed amount of money and to sell a fixed number of tokens, so that the investors could predict their share in the total amount of coins from the very beginning. When using the capped token sale, the organizers refuse to attract a wide range of users and to allow every one of them to buy a certain number of coins at the market price.

For eхample: During the initial coin offering of the Basic Attention Token the founders of the Brave Browser project collected $35 million within half a minute but only 185 participants out of 10,000 were able to buy the coins.

How the Brave Browser ICO was carried out

Uncapped Token Sale

The ICO organizers set a fixed price for the tokens and sell an unlimited amount of them as long as there is an interest among the investors.

The amount of funds to be raised is not limited.

All buyers can buy any amount of coins.

This scheme is suitable for those projects where a large amount of investors is required and each of them should be able to buy the coins. The organizers refuse to sell the coins at the market price and do not give the buyers an opportunity to predict their share in the total amount of coins.

For eхample: Ethereum tokens were sold during 42 days without any quantitative limit. Within the first two weeks the users bought 2,000 ETH for 1 BTC, while during the last days of the sale for 1 BTC you could buy only 1,337 ETH. The investors could buy any amount of coins they needed but at the beginning they had no idea about the final capitalization.

Capped Auction

The project organizers set a limited amount of coins and a hard cap.

The participants place bids, i.e. indicate the amount of coins they want and the maximum amount of money they are willing to pay for them.

The organizers hold a Dutch auction: they announce the maximum price and lower it step by step. That is how the offer price is formed.

The organizers accept the bids until there are no more coins left. The participants can place bids at any time of the token sale. This is how the demand price is formed: the more stakes, the higher is the price.

When the demand price becomes equal to the offer price, the organizers sell the coins to the users.

The buyers get the coins at the equilibrium price in the amount that corresponds to their bids.

It is impossible to predict the equilibrium price, that is why sometimes the organizers apply the Spend-All principle. According to this principle, a fixed amount of coins is distributed among the users, notwithstanding the equilibrium price.

The scheme is aimed at raising a fixed amount of money, selling at the market price and predictability of the share received by each participant. In such a case it is impossible to distribute cryptocurrency among a large number of buyers and to allow each of them to buy any number of coins.

For eхample: In Gnosis they set a capitalization limit of $12.5 million and did not apply the Spend-All principle. The investors bought the coins during 3 hours, the hard cap was reached when 4.19% of tokens were sold. The Gnosis organizers were left with 95% of coins, though the auction terms implied the sale of 90% of tokens.

Capped Sales with Redistribution

The organizers limit the investment amount and the token generation volume.

The auction participants bid on the purchase price.

The tokens are distributed at a fixed rate in proportion to the amount invested by each participant.

The money exceeding the fixed financial limit is returned to the auction participants.

This scheme allows all those who wish to participate in the ICO but if the demand is high everyone gets fewer coins than expected in the very beginning. Some participants receive their money back.

For eхample: In NEO ICO the participants got a chance to receive all the invested money if the sales exceeded the set limit.

Capped Sales with Parcel Limit

The project founders limit the amount of investments. The maximum purchase amount is limited. For example, the maximum amount is set for each transaction or each participant is allowed to submit only one bid.

The total token supply is set and the tokens are sold at a fixed rate on a first-come first-served basis. The bids with a raised amount are automatically rejected.

This model is aimed at a large amount of participants, limitation of financing and predictability of the shares. The tokens are sold at the market price and the big fish cannot get them all because of the limit set for the bids.

For eхample: In Enigma an investment limit of $3,600 was set for each participant. The bids that exceeded the limit were rejected and the money was returned to the participants' accounts.

Optimal ICO Structure

The co-founder of the Ethereum project Vitalik Buterin thinks that the optimal ICO sales scheme should combine the following characteristics:

it gives an idea of the total capitalization;

it gives the participants an opportunity to make an investment;

it is intended for a limited amount of financing;

it is carried out in such a way that the project founders are not left with the major part of the coins that would give them a centralized control over the project;

it is effective and does not lead to financial losses.

It is impossible to meet all these conditions simultaneously in the above schemes because they contradict one another. For example, when capitalization is limited to $50 million and $70 million are raised, some of the participants will not be able to make an investment.

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